The rise of Snapchat from a sexting app by Stanford frat bros to a $3.9 billion IPO

Snapchat’s beginning sounds a lot like Facebook’s from “The Social Network.”

In Snapchat’s case, it wasn’t two ousted cofounders (the Winklevoss twins) against Mark Zuckerberg. But still, it featured the backdrop of an elite university — Stanford versus Harvard — and ended up in litigation, with Snapchat cofounders Evan Spiegel and Bobby Murphy against Reggie Brown.

At stake was the founding story of a social network to make photos disappear. Snapchat’s founders ended up paying AUD$205.29 million.

Snapchat survived its rocky starts to now be on the verge of a $26.07 billion IPO. Here’s how Snapchat went from a million-dollar idea about disappearing photos to the giant social media company called Snap today:

Like many other startups, ground zero for Snapchat's story is Stanford University, where a young Evan Spiegel from Los Angeles befriended Reginald (Reggie) Brown. The pair decided to join Kappa Sigma fraternity -- where they would meet Snapchat cofounder Bobby Murphy -- although it would be a few years before they turned the idea of disappearing photos into a business.

Business Insider/Alyson Shontell

Stanford University's Kappa Sigma fraternity house

Snapchat wasn't Spiegel's first startup. Murphy had recruited Spiegel, a Kappa Sig brother one year younger than him, to help with an idea he had about a social network. In 2010, they then launched FutureFreshman, a site meant to make applying to college easier. It never really took off, but Spiegel had caught the entrepreneurial bug.

FutureFreshman/LinkedIn

It wasn't until Spiegel's junior year that the idea for Snapchat was born. 'I wish these photos I am sending this girl would disappear,' Brown told Spiegel in April 2011. His friend immediately got excited about the concept of disappearing photos and told Brown that this was a million-dollar idea. Five years later, that idea would now be worth billions.

Reggie Brown told Evan Spiegel that he wished some photos would disappear, creating the seed for what would become Snapchat.

In Summer 2011, Snapchat was born -- except it wasn't called Snapchat at first. When it launched in the App Store, it was called Picaboo. Brown, Spiegel, and Murphy spent the summer working on it. Spiegel even drew the now famous Ghostface Chillah ghost icon.

Los Angeles County Court

But Picaboo wasn't a smash hit. By the end of the summer, it only had 127 users. Then Brown, Spiegel, and Murphy had a fight over the startup's ownership. It ended up in Spiegel hanging up the phone and locking Brown out of all the startup's accounts. The move would later cost them millions.

The now-duo changed the app's name to Snapchat in September 2011, its official birthday. It still wasn't a smash hit, but it started to slowly catch on when Spiegel's cousin started using it at a high school in Los Angeles. Teens had found a way to send photos and messages that would disappear seconds after opening.

The original Snapchat app

By spring 2012, the app that once had just over 100 users now had 100,000 daily active users. That also came with a problem: rising server costs. Spiegel and Murphy were paying nearly $6,517 a month to keep the app going, and just as they were about to run out of money, Lightspeed Venture Partners' Jeremy Liew found Spiegel and gave Snapchat its first check.

Lightspeed

Jeremy Liew is a partner at Lightspeed Venture Partners who found hot startups like Snapchat and Whisper before everyone else.

When the money hit his bank account, Spiegel walked out of school. He was just three credits shy of graduation from Stanford. He and his team (which had then expanded to two other developers) moved into Spiegel's dad's house in Los Angeles. By the end of 2012, Snapchat had hit a million daily active users.

Google Street View

The Spiegel home in Pacific Palisades where Snapchat was launched.

That's when Facebook gave Snapchat a huge gift. In December 2012, it launched its own Snapchat competitor, Poke. At first Spiegel was worried it was going to crush his app, but Snapchat quickly surpassed Poke. Spiegel now calls it the 'greatest Christmas present' to Snapchat.

The app continued to grow and only attracted more attention from venture capitalists. But that's when Snapchat's story turns into a founder drama like 'The Social Network.' In February 2013, Reggie Brown -- the guy who came up with the idea for disappearing photos -- sued Murphy, Spiegel, and Snapchat for cutting him out of the business.

Still, the trial didn't slow Snapchat's growth down. In Fall 2013, the company unveiled Snapchat Stories -- its first step to making things less ephemeral. Snapchat users could upload their snaps to a story that would last 24 hours. It's the closest Snapchat would come to recreating the Facebook timeline.

Snapchat's fast rise -- and seeming defeat of Facebook Poke -- soon gained the attention of Mark Zuckerberg. The Facebook CEO came to Evan Spiegel with an offer: $3.9 billion for the company. Spiegel famously played hard to catch before turning Facebook down.

A month later, Snapchat was hacked. The username and phone numbers of more than 4 million accounts were exposed and people were furious. After all, the app still had a reputation for sexting at this point -- and people were afraid what else might leak. At first, the young CEO didn't see the need to apologise, but the backlash was swift. The company settled a few months later with the FTC over charges that it misled its users.

The Today Show

Spiegel went on 'The Today Show' at the time to say that he thought the company 'had done enough.' The millions whose account info was exposed didn't agree.

Sleazy emails from Spiegel's Stanford days were then posted by Valleywag, a Silicon Valley news site, in May 2014. With subjects like 'F--- b------ get leid,' the emails shined a negative light on the CEO who was already drawing comparisons to Steve Jobs.

But that didn't slow Snapchat's success. It finally added a chat function, and launched Live Stories, or curated perspectives from thousands of people. By July 2014, investors valued the company at $13.03 billion. In three years, it had gone from a million-dollar idea to a $13.03 billion dollar one.

According to Nick Bell, Snapchat's Live Stories feature was inspired by a visit from illusionist David Blaine to Snapchat's headquarters. He watched as all of his friends were recording video of the magic trick, and he wanted to put the different perspectives together to see if he could figure it out. That's when they realised that you could tell a better story by having the viewpoints of thousands of people on an event instead of just one.

The company started expanding from outside the Venice Beach bungalow where it moved after leaving Spiegel's dad's house and picked up more office space. It also started hiring a bunch of senior leaders to help the then-24-year-old CEO. Its Chief Strategy Officer, Imran Khan, joined in January 2015 from Goldman Sachs. Snap's CFO, Drew Vollero, joined from Mattel in August 2015. Still, Spiegel was the one clearly in charge -- and mapping where it would go next.

Glassdoor

Snapchat also started welcoming outside content in. In January 2015, it added the Discover section, which allowed publishers to post Snapchat-friendly news items. The app became not just about sharing photos with friends, but sharing everything from Discover articles to chats to life in the moment.

Snapchat also found a way to make money -- much to the relief of its investors. It started out by adding ads in its geofilters. So if you were in a McDonald's, you could Snapchat a photo of yourself covered in fries.

Geofilters were just the start though. After Snapchat acquired Looksery, it added those famous lenses (like the barfing rainbows) that helped turn Snapchat into the sensation it is today. By the end of 2015, 100 million people were using it every day

Maya Kosoff/Business Insider

Snapchat had also secretly bought Bitmoji, a popular cartoon-figure app that had once blown up on Facebook. This was only confirmed though when Spiegel got engaged in July 2016 to Miranda Kerr, an Australian model he'd been dating for a year.

While Snapchat the app took off, Spiegel and Murphy had actually started working on a new secret project: sunglasses. It was revealed in the Sony Hack of 2014 that the company had purchased Vergence Labs, the maker of Epiphany Eyewear smart glasses. The division of the company called Snap Labs was so secretive that only a few people knew that it was working on a hardware project at all.

Epiphany Eyewear

Snapchat secretly bought the company behind Epiphany Eyewear, a pair of smart glasses.

It was only revealed in June 2016 that Spiegel had been photographed by the paparazzi wearing an early prototype while on vacation with his girlfriend Miranda Kerr.

AKM-GSI/Business Insider

It was only when Snapchat finally unveiled the Spectacles -- a surprise to employees internally -- that it also revealed that it changed its name to Snap Inc. in September. The change name also came with a changed motto: Snap Inc was now 'a camera company.'

Snapchat

The name change was a clear sign that the company was ready to go public: 'You can search Snapchat or Spectacles for the fun stuff and leave Snap Inc. for the Wall Street crowd :)' the company said in a blog post.

Michael Loccisano/Getty Images

On February 2, 2017, Snap Inc. finally filed to go public — ending a drought in tech IPOs. More than 158 million people use the app daily, something the company attributed to the fact that 'We eat, sleep, and poop with our smartphones every day.'

Larry Busacca/Getty Images for Time Inc

And in the filing we finally learned how much Snap paid to make Reggie Brown disappear: $205.94 million.

That sounds like a large number now, but Snap Inc. is planning on a $3.91 billion IPO. 'When we were just getting started, many people didn’t understand what Snapchat was and said it was just for sexting, even when we knew it was being used for so much more,' the company wrote in its filing. Its journey from a million-dollar disappearing photo app to the camera company it is today certainly proves it.

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